Labor unions, like the government, can change prices — in this case, the price of labor — but without changing the underlying reality that prices convey. Neither unions nor minimum wage laws change the productivity of workers. All they can do is forbid the employer from paying less than what the government or the unions want the employer to pay.
When that is more than the labor in question produces, some workers who are perfectly capable become “unemployable” only because of wages set above the level of their productivity. In the short run — which is what matters to politicians and to union leaders, who both get elected in the short run — workers who are already on the payroll may get a windfall gain before the market adjusts.
But, sooner or later, the chickens come home to roost. They have been coming home to roost big time in the automobile industry, where hundreds of thousands of jobs have been lost over the years. It is not that people don’t want automobiles. Toyota is selling plenty of cars made in its American factories with non-union labor.
From economist Thomas Sowell´s recent column Priceless Politics III.
MP: Like stepping on the bathroom scale, the ruthless forces of the market alway eventually expose economic flab and inefficiency. And although you can maybe avoid stepping on the scale in the short run, you cannot avoid the scale in the long run.
The market forces of supply and demand, along with a strong dose of globalization, finally forced the UAW to step on the scale, and guess what? Union wages and compensation are way too high, and union productivity is way too low, according to the scale. And like the bathroom scale, the market doesn´t lie, it always provides accurate and truthful information, as painful as it might be.
Bottom Line: The UAW is probably the most successful union in U.S. history, at achieving both higher-than-market wages and below-market productivity for its members, at least in the short run. But that very union success created the seeds of a powerful destruction that we are witnessing today, and in the long run that very union success is destroying thousands and thousands, and maybe millions of union jobs, and is destroying many of the very companies that employs its members (GM, Ford and Chrysler). As Sowell points out, the chickens have come home to roost, or the UAW finally had to step on the scale.